Wheat Basis Begins Recovery

by David Widmar

While the economic outlook for U.S. agriculture has been bleak in recent years, the challenge has been especially difficult for wheat producers. As evidence of these tough times, U.S. wheat acres, which have trended lower since the early 1980s, tumbled to new lows in 2016 and 2017. Furthermore, Brent previously examined the relationship between wheat and corn prices and found current wheat prices are historically low.

One of the most evident challenges wheat producers have faced in recent years has been a historically large gap between future prices – the price traded on the board of trade – and local cash prices. This difference –known as ‘basis’ – has been historically wide and creates challenges for producers’ marketing plans. This week’s post considers wheat basis data at three locations to look at the current situation as well as historical conditions. Continue reading

Corn or Soybean in 2016?

2016 Corn Soybeans

by David A. Widmar

As fall harvest begins attention will start to focus on 2016. Early glimpses of what next spring might have in store are beginning to emerge. While a lot can (and likely will) change before planters head to the fields, 2016 is shaping up to be less favorable to soybean production. To examine further, we looked at the latest Purdue University crop budget estimates.

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Does the Natural Hedge Work?

by Brent Gloy and David Widmar

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In last week’s post we used USDA yield estimates to look at how revenue expectations have changed as commodity prices deteriorated. This led us to wonder about the ‘natural hedge’ and its effectiveness; how strong the natural hedge is and how much variability is there across the country.

Economists often talk of a natural hedge occurring when low yields are offset by higher commodity prices, and high yields are offset by lower commodity prices. In theory, this condition naturally adjusts revenue as yields and prices move in opposite directions, serving as an automatic risk management tool. In this week’s post, we examine historical county-level yield and state-level market year average (MYA) prices to better understand the natural hedge.

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